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January 16, 2018

Boston Fed's Fuhrer gives growth outlook, tax-reform impact readout

Photo / Peter Van Allen
Photo / Peter Van Allen
Jeffrey C. Fuhrer, executive vice president and senior policy advisor for the Federal Reserve Bank of Boston, spoke Tuesday morning at the Mainebiz Five on the Future event in Portland.

Jeffrey C. Fuhrer, executive vice president and senior policy advisor at the Federal Reserve Bank of Boston, on Tuesday predicted 2.5% U.S. economic growth in 2018 and gave a quick readout of what the new tax-reform package means for households and businesses.

"For the last three quarters, we've actually had quite robust growth, averaging around 3%" he said in opening Mainebiz's Five on the Future event in Portland. "It turned out the year as a whole was actually pretty good."

In the coming year, he said growth is expected to be "in the 2.5% range, maybe a little stronger, maybe a little weaker."

And while the projected growth will be consumer-led, investment is also doing better, according to Fuhrer's presentation. He also said he's optimistic of productivity growth picking up.

Impact of tax reform

Photo / Peter Van Allen
Photo / Peter Van Allen
From left, are Fuhrer, Kathie Leonard, Michael O’Hanlon, Drew Sigfridson, Matt McGrath.

Turning his attention to the recently passed tax reform, he noted that while most households will receive a net tax cut, the biggest cuts will go to the highest-income households. Those lower rates revert back to current rates in 2025 to reduce the impact of deficits.

For corporations, the reform means a lower tax rate of 21%, down from 35%; repatriated earnings will be taxed at a lower rate; and more rapid expensing of capital and structures.

Interestingly, Fuhrer said that while companies have been sitting on a lot of cash or cash-like assets for some time, they've by and large used the money to buy back shares or pay dividends.

With greater after-tax profits generated by the reform, Fuhrer said, the hope is that employers will return more to workers, and noted that some have already said they will give bonuses and raise wages.

"We hope we'll see more of that," he said.

Following his talk, Fuhrer moderated a panel discussion with Kathie Leonard, president and CEO of Auburn Manufacturing; Michael O'Hanlon, vice president of government and industry relations at Wayfair; Drew Sigfridson, SIOR, managing director of brokerage Services at CBRE | The Boulos Co.; and Matt McGrath, president of Systems Engineering.

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